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Chapter 18: Q23RQ (page 1006)
Describe the three groups of units that must be accounted for when using the FIFO method.
Under the FIFO method, the following three groups of units must be accounted for:
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Billy Davidson operates Billy’s Worm Farm in Mississippi. Davidson raises worms for fishing. He sells a box of 20 worms for \(12.60. Davidson has invested \)400,000 in the worm farm. He had hoped to earn a 24% annual rate of return (net income divided by total assets), which works out to a 2% monthly return on his investment. After looking at the farm’s bank balance, Davidson fears he is not achieving this return. To evaluate the farm’s performance, he prepared the following production cost report. The Finished Goods Inventory is zero because the worms ship out as soon as they reach the required size. Monthly operating expenses total \(2,000 (in addition to the costs below).
BILLY’S WORM FARM Production cost report – BROODING DEPARTMENT Month Ended June 30, 2018 | |||||
| Equivalent units | |||||
Units | Physical units | Transferred in | Direct materials | Conversion costs | |
Units to account for: | |||||
Beginning WIP | 9,000 | ||||
Transferred in | 21,000 | ||||
Total units to account for | 30,000 | ||||
Units accounted for: | |||||
Completed and transferred out | 20,000 | 20,000 | 20,000 | 20,000 | |
Ending WIP | 10,000 | 10,000 | 6,000 | 3,600 | |
Total units accounted for | 30,000 | 30,000 | 26,000 | 23,600 | |
COSTS | Transferred in | Direct materials | Conversion costs | Total costs | |
Cost to account for: | |||||
Beginning WIP | \)21,000 | \(39,940 | \)5,020 | \(65,960 | |
Cost added during period | 46,200 | 152,460 | 56,340 | 255,000 | |
Total cost to account for | 67,200 | 192,400 | 61,360 | 320,960 | |
Divided by total EUP | 30,000 | 26,000 | 23,600 | ||
Cost per equivalent units | \)2.24 | \(7.40 | \)2.60 | ||
Costs accounted for: | |||||
Completed and transferred out | \(44,800 | \)148,000 | \(52,000 | \)244,800 | |
Ending WIP | 22,400 | 44,400 | 9,360 | 76,160 | |
Total costs accounted for | \(67,200 | \)192,400 | \(61,360 | \)320,960 | |
Requirements
Billy Davidson has the following questions about the farm’s performance during June.
1. What is the cost per box of worms sold? (Hint: This is the unit cost of the boxes completed and shipped out of brooding.)
2. What is the gross profit per box?
3. How much operating income did Billy’s Worm Farm make in June?
4. What is the return on Davidson’s investment of \(400,000 for the month of
June? (Compute this as June’s operating income divided by Davidson’s \)400,000
investment, expressed as a percentage.)
5. What monthly operating income would provide a 2% monthly rate of return?
What sales price per box would Billy’s Worm Farm have had to charge in June to
achieve a 2% monthly rate of return?
Color Explosion prepares and packages paint products. Color Explosion has two departments: Blending and Packaging. Direct materials are added at the beginning of the blending process (dyes) and at the end of the packaging process (cans). Conversion costs are added evenly throughout each process. The company uses the weighted- average method. Data from the month of May for the Blending Department are as follows:
Gallons | |
Beginning work-in-process inventory | 0 gallons |
Started in production | 8,500 gallon |
Completed and transferred out to packaging in may | 6,500 gallon |
Ending work-in-process inventory (30% of the way through the blending process) | 2,000 gallon |
Costs | |
Beginning work-in-process inventory | \(0 |
Costs added during May: | |
| 5,525 |
| 1,500 |
| 2,547 |
Total costs added during May | \)9,572 |
Requirements
1. Compute the Blending Department’s equivalent units of production for direct
materials and for conversion costs.
2. Compute the total costs of the units (gallons)
a. completed and transferred out to the Packaging Department.
b. in the Blending Department ending Work-in-Process Inventory.
Complete the missing amounts in the following production report. Materials are added at the beginning of the process; conversion costs are incurred evenly; the ending inventory is 60% complete. The company uses the weighted-average method.
NATHAN COMPANY Production Cost Report – Finishing Department Month Ended September 30, 2018 | ||||
| Physical units | Equivalent Units | ||
| Direct materials | Conversion costs | |||
Units to account for: | ||||
| 500 | |||
| 2,200 | |||
Total units to account for | (a) | |||
Units accounted for: | ||||
| (b) | (d) | (g) | |
| 500 | (e ) | (h) | |
Total units accounted for | (c) | (f) | (i) | |
COSTS | Direct materials | Conversion costs | Total costs | |
Cost to account for: | ||||
| \(1,200 | (j) | \)2,140 | |
| 12,030 | 8,310 | (k) | |
Total costs to account for | (l) | 9,250 | 22,480 | |
Divided by: Total EUP | (m) | (n) | ||
Cost per equivalent unit | (o) | (p) | ||
Costs accounted for: | ||||
| (q) | (r) | (s) | |
| (t) | (u) | (v) | |
Total cost accounted for | (w) | (x) | $22,480 | |
Question: The Jimenez Toy Company makes wooden toys. The company uses a process costing system. Arrange the company’s accounts in the order the production costs are most likely to flow, using 1 for the first account, 2 for the second, and so on.
Order | Account |
Work-in-process inventory – Packaging | |
Cost of goods sold | |
Work-in-process inventory – Cutting | |
Work-in-process inventory – Finishing | |
Finished goods inventory |
Question: Spring Fresh produces premium bottled water. Spring Fresh purchases artesian water, stores the water in large tanks, and then runs the water through two processes: filtration and bottling.
During February, the filtration process incurred the following costs in processing
200,000 liters:
Wages of workers operating filtration equipment | $19,950 |
Manufacturing overhead allocated to filtration | 20,050 |
Water | 110,000 |
Spring Fresh had no beginning Work-in-Process Inventory in the Filtration Department in February and uses the weighted-average method.
Requirements
1. Compute the February conversion costs in the Filtration Department.
2. The Filtration Department completely processed 200,000 liters in February. What was the filtration cost per liter?
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